Classic Scenic cushioned against US dollar volatility

KUALA LUMPUR: Classic Scenic Bhd, which exports more than 90% of its sales in US dollars, is largely cushioned from the greenback's volatility, as the group has set out a hedging policy for its export proceeds, said its executive director, Lim Chee Hwa.
The group is involved in the manufacturing and sale of wooden picture frame moulds and timber products, and production is carried out solely in Malaysia.
"Nobody can tell how the ringgit and the US dollar will move. So what we can do is to hedge our export proceeds," Lim told reporters after the group's AGM last Friday.
He said the group has hedged up to 60% of its export proceeds, leaving the remaining 40% exposed to the market.
"So regardless of how the US dollar moves, we are not so badly affected because our hedging policy will help to cushion the dollar's movements."
The ringgit has been appreciating against the US currency since the beginning of the year although its rally has slowed down of late.
Last year, Classic Scenic's net profit increased 13.6% to RM11.5 million, from RM10.12 million a year ago, due mainly to the strengthening of the US dollar against the ringgit, while revenue declined 7.5% to RM54 million, from RM58.4 million previously, due to lower sales revenue as a result of lower export volume of wooden picture frame moulds.
Commenting on the financial year ending Dec 31, 2016 (FY16), Lim said the group expects to see better results compared with the previous year, in view of the steadily declining unemployment rate, strengthening household balance sheets and improving housing market in the US, which will boost consumer spending.
Lim said about 80% of the group's turnover is derived from its business in North America, comprising the US and Canada. He said the group's two main customers are major US arts and craft chain stores Michaels Stores Inc and Hobby Lobby.
Lim said against the backdrop of an improvement in the world economy, demand for timber is expected to rise and thus drive up prices. The group's high sawn timber inventory level, however, is expected to cushion the impact. The group uses locally sourced timber.
This year, Lim said, the group has set aside RM1.5 million to RM2 million for capital expenditure to build a warehouse next to its existing plant in Rawang, Selangor, to purchase new machinery, as well as for its enterprise resource planning system to improve operational efficiency.
The group had zero gearing and a strong cash balance of RM21.4 million at end-FY15. The group is paying a total net dividend amounting to RM12 million or 10 sen per ordinary share to its shareholders for FY15. It has maintained a dividend payout ratio of about 100% of its net profit since FY09.